Basis Of Estimate
You need to justify your price
Basis of Estimate development starts with understanding the Statement/Scope of Work (SOW) requirements within the Request for Proposal/Quote (RFP/RFQ). A detailed Work Breakdown Structure (WBS) is developed to determine the most efficient means of performing the work. This structure is then compared against historical data from the RFP/RFQ to determine the amount of work to be performed (in hours) and the personnel to perform this work by labor category. These basis of estimates can be done on a very detailed basis or at a higher level, depending on the available data. The more detailed the estimate, the greater the confidence level in the resulting hours estimate.
Think of a house being built. An estimate based on the detailed floor plans will have a much lower margin of error in the final estimate than a parametric estimate based on the rough criteria of two story, 2,000 square feet brick home, which will derive a price that has a +/- of 30% accuracy. The same with a Basis of Estimate. The more detailed the data available, the more accurate the overall price for the SOW.
As an example, on one estimate DCG Pricing was within 0.5% of the Independent Government Cost Estimate (IGCE). This was on a ~$130 million proposal after doing a detailed Basis of Estimate.